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When I was an reconnaissance helicopter pilot in the Army many
years ago, that was a popular saying that was passed down by the
more experienced pilots, some of whom had flown during the
Vietnam War. It was meant to convey our own frailty, and
the foolishness of being too eager about finding the enemy's
location.

LOH back then stood for Light Observation Helicopter, either a
Hughes OH-6 Cayuse or a Bell OH-58. It was pronounced as
"loach". They were 4-seat commercial helicopters that were
bought by the Army and adapted for use in scouting for enemy
forces. A pilot had little more than his eyes and his wits
as weapons, and the .040" aluminum skin and Plexiglas windows
were not much protection from enemy fire. The idea was to
fly low, using the terrain for cover and concealment, and try to
find the enemy so that fighter planes or attack helicopters could
be called in to deliver ordinance on the enemy's position.

But given the fact that enemy soldiers are usually not stupid,
and don't want to be spotted, often the first indication that a
pilot had located the enemy's position was that he was taking
fire from the enemy. A lot of them got shot down. So
then another helicopter crew would step in to radio the fast
movers and guide them into the target. The fighter pilots
would acknowledge that call, and the existence of enemy fire in
the area, and then ask:

"Roger, how is the target marked?" The question was about
the possible use of colored smoke, landmarks, or other features
that can be seen while zooming in at 500 MPH.

And the answer would be, "The target is marked by the burning
LOH."

There is a corollary to this in the financial markets.
Quite often at the end of a big price move, we learn about a big
institution blowing up because they did not think that the trade
would go so far against them. The 2006 case of Amaranth
Advisors would be a classic example, with its bankruptcy in late
2006 marking the bottom for natural gas prices ahead of the big
commodity bubble in 2008. There were several portfolios
that blew up at the top of that bubble.

In this week's chart, I have labeled several notable news events
that served as markers of important turns for T-Bond
prices. Back in 1994, Orange County, California went bankrupt because
its treasurer, Robert Citron, had overextended his bets the wrong
way in the bond market. That bankruptcy marked the bottom
for the big price decline. Orange County was the burning
LOH.

In late 1998, the money management firm Long Term Capital
Management (LTCM) famously made huge bets on T-Bonds that were
based on the limits of how far price moves had historically gone
in the past. And the market taught them a lesson about how
trends can persist longer than one can stay solvent. The
Federal Reserve had to intervene, lining up several major banks
to help take apart LTCM's positions and keep it from cascading
into a bigger problem. LTCM's collapse was the burning LOH
for that up move.

More recently, the collapses of Bear Stearns, Lehman Brothers, and MF Global each coincided with peaks in bond
prices. Each was the burning LOH for its particular moment
in history.

So now this week, we find out that J.P. Morgan Chase (NYSE:JPM) has suffered a $2
billion loss on financial derivative bets that went bad.
And this news comes as T-Bond prices are once again getting back
up to the price levels seen at last year's MF Global
collapse. The implication is that the news of JPM's big
loss is serving as the "burning LOH" of this current time frame,
and the news arrives just as the stock market is about at the end
of the corrective period suggested by both our eurodollar COT
leading indication and the Presidential Cycle Pattern.
Subscribers to our twice monthly newsletter and our Daily
Edition have been watching the current stock market
correction unfold pretty much right on schedule relative to those
models, and now we have a portfolio blowup to help mark the
beginning of the end of that corrective process.